MHK Report on IRD Pursing Directors for Unpaid Tax

The IRD have been increasingly noticeably more aggressive in pursuing directors of insolvent companies for unpaid tax over recent years. Ian Malcolm, Managing Director of MHK Chartered Accountants Auckland, warns directors of this, and that many directors think that just because their company is insolvent, they can hide behind the corporate veil, and have no responsibility to pay creditors. 

But the IRD was at least partly responsible as creditor for 69.3% of all company liquidations.  Why?  While other creditors often conclude the cost of pursuing outstanding debts or taking recovery action against an obviously insolvent company is uneconomic, IRD can do so.

There are three separate areas the IRD can and have attacked:

Invoking the Income Tax Act or GST Act to determine directors to be liable for unpaid taxes as “agent” of the company.  It must be remembered that PAYE and GST are held in Trust, a fact that many directors ignore, dipping into those funds to pay other creditors or even simply pay themselves by taking the funds as drawings.
If taken as drawings, these often show as advances owed to the company by the directors.  It is the responsibility of a Receiver or Liquidator to attempt to recover these from a director, however often there are insufficient funds to allow them to take legal action to do so.  The IRD is increasingly funding this type of action that may otherwise not be pursued.
Resorting to remedies under the Companies Act 1993 against the director(s) it holds responsible for the company’s default.  Under the Companies Act, duties of a director include not to trade recklessly and not to allow the company to incur financial obligations it cannot meet. Those particular duties are owed to the company and not to shareholders.

These remedies have in many recent cases allowed Inland Revenue to recover tax from the individuals behind those insolvent companies, we will elaborate more on those in a separate release.

The above article is written with acknowledgement of publications from, and thanks to, CCH www.wolterskluwer.co.nz

MHK Chartered Accountants are Auckland Chartered Accountants who specialise in business structuring and legally minimising all types of taxation obligations, and welcome a no-obligation discussion free of charge or for more information please contact Ian Malcolm 09 917 2893 or 021456225, or  Aaron Neels 09 917 2897. For more information on Auckland chartered accountants, business structuring and accountants, please go to

https://aucklandaccountant.net.nz/